New businesses, big ideas - 2014 brought a stream of technology-focused companies to the sharemarket. Jamie Gray looks at how things worked out for the new arrivals, and their investors.
Back in 2013 and '14, the New Zealand Stock Exchange was doing just what sharemarkets are supposed to do: deliver a stream of companies with bright ideas, looking for investment to turn those ideas into growing, profitable businesses.
Since then, the swarm of tech stocks that flocked to the market has been a mixed bag.
Out of a list of 14 tech stocks that listed recently - most of them in 2014 - five have recorded double- or triple-digit percentage gains; eight have suffered falls; and one - Wynyard - has failed.
For investors who struck it right, the gains have been very rewarding indeed.
Vista Group, which specialises in software for cinemas and the movie business, has delivered a 121 per cent gain, with dividends on top of that.
Gentrack, which specialises in software for utilities and airports, has made a 134 per cent gain. And Bloomberg calculates that Pushpay, which provides point-of-sale systems through mobile phone networks, has delivered a 702 per cent return, taking a share split into acount.
On the flipside, Wynyard - which developed crime-detecting software - has failed completely.
Others have seen their share prices savaged and a few - such as health services software provider Orion - have gone back to the market for more funds.
Against that background, the wider sharemarket has continued onward and upward.
Since the start of 2014, the year that most of the new tech stocks listed, the benchmark NZX50 index has rallied by a very healthy 70 per cent.
The tech stocks rode to the market on the coat-tails of the National Government's partial privatisation programme. Part of the logic behind the sale of shares in state-owned enterprises (SOEs) was that it would help rejuvenate the capital markets after the global financial crisis (GFC).
The first SOE to be partly sold under the Government's so-called mixed ownership model was Mighty River Power in May 2013, followed by Meridian in October the same year, and Genesis in April 2014.
For a time at least, the programme achieved its goal of stimulating the market.
"It was a feeding frenzy for initial public offers (IPOs) at that time," says Rickey Ward, New Zealand equity manager at broker JBWere.
"We had come off the post-GFC capital raisings of 2009, then there was a lull, and then the SOEs led to a frenzy of IPOs."
The SOE sales absorbed a huge amount of capital, temporarily starving the market of oxygen, but the new issues eventually followed.
Some of the newbies have gone from strength to strength, while others have faltered. "A number of them are also not profitable, but they are really about potential," Ward says.
"And a number of them have been through the bump now and are on their way towards being self-funding."
The arrival of several new IT companies has required investors to think differently; in this space it's all about growth, not necessarily about profitability.
Analysts are quick to point out that the market's success stories - Xero and a2 Milk - were both unloved by the market in their early days. Today, the two companies have a combined market capitalisation of more than $10 billion.
"The ones that have come unstuck are the ones that have had a bit of a hiccup around their growth potential," Ward says.
Private equity firms have played a big part in the process, often using IPOs to either completely offload or reduce their holdings in companies in which they have a controlling interest.
Some observers see private equity as a necessary part of the process, rehabilitating troubled companies or providing financial backing to those who have more potential than capital.
For others, private equity firms are "pump and dump" specialists, out for a quick buck.
Ward says the lesson for investors dealing with private equity selldowns is to ensure that the interests of private equity - if they remain in the company - are aligned with those of the new investors.
The other lesson is diversity - the well-worn investment maxim of not having all one's eggs in the one basket.
"You can find good investment stories but unfortunately, a lot of people have a bad one as well," Ward says.
Looking over the list of recently-listed tech stocks, he says there is no obvious reason why one IPO ends up as a star, while another fails to shine.
"You are investing in something that does not have visibility and it's very hard to provide that when you don't have a profit - and we have seen that with Xero and a2 Milk.
"A2 is making money now but it didn't when it started and it went for a period of time without making any cash.
"Xero is going to be profitable, but they are not a smooth ride."
Orion Health, which specialises in software for the healthcare industry, listed in November 2014 after raising $120 million in new capital. It sold 21.1 million shares at $5.70 - the top end of an indicative range - and listed at a big premium.
In its early days the company had a staggering market capitalisation of more than $1 billion, compared with just $205m today. Its shares now trade at $1.06 or so, a far cry from their peak of $6.05.
More problems for Orion emerged early this year, when the company said it had failed to close a number of contracts. Orion later required a $32.9m underwritten rights issue to shore up its balance sheet.
The company reported a $34.2m loss in the year to March, down from a $54.4m loss a year earlier.
For the current year, Orion is looking at an operating first-half loss of $20-$25m, but it expects to be profitable in the second half.
Gentrack, which develops software for utilities and airports, has had a better run, although it too had a problem missing contracts in its early days as a listed stock.
The company debuted in June 2014 at $2.40 a share and its shares last traded at $5.81.
Mark Lister, head of private wealth research at Craigs Investment Partners, says missing contracts is a risk in the software business.
"It's the nature of this type of industry," Lister says. "You are trying to win deals with offshore companies.
"They can be lumpy deals that are difficult to predict, but it's a high-risk part of the market."
Gentrack announced a net profit of $5.6m for the six months to March, up 46 per cent on the first half of 2016. The company has said it expects improved underlying earnings in the year to September of $24m, up from its previous guidance of $20m. Unlike many other tech companies, Gentrack pays a dividend.
Another newcomer - and dividend payer - is Vista, whose technology is used to manage cinema operations in more than 60 countries. Vista shares recently traded at $5.23, having debuted in August 2014 at $2.40.
For the six months to June, the company turned a $4.81m profit, up from $1.04m a year earlier.
Among the newly listed tech stocks, the big losers have been investors in Wynyard Group, which went into liquidation in February, after going into voluntary administration in October.
Wynyard, which listed in 2013 with an issue price of $1.15, had gone as high as $3.12 in 2014 before tanking to 21.5c, just before it went under.
Rob Mercer, head of private wealth research at Forsyth Barr, says the entrepreneurial spirit is evident in the recently listed tech stocks, but some may have come to the market too early.
"What characterises this list is the entrepreneurial energy of people using the equity market to accelerate the second phase to lift their businesses to a new level," says Mercer.
"That's what exchanges are there for, to raise capital.
"They believe in their business models and their global capabilities, but these models take time, so we are measuring these companies over a relatively short period, and you get the volatility of success and failure that comes with that," he says.
"With Wynyard, their undoing was that their costs increased faster than their revenue."
On the other side of the coin is a2 Milk, which "has spent most of its life completely out of favour - and struggling, raising capital and scrimping".
"Here [a2] is an example of a business model that is taking over 15 years to deliver on its potential."
For Mercer, the a2 and Xero experience points to the need for investors to hang in there.
"Some of these investments require extraordinary patience to see them through," he says.
Craigs Investment Partners' Lister says the tech sector is not for the faint-hearted. "You have had some big winners and some big losers, so it's definitely a volatile sector. That's par for the course - it's not for widows and orphans.
"This is a different kettle of fish from buying, let's say, Auckland Airport or Meridian," says Lister.
"That's not a bad thing - it just means that you don't bet the farm on some of these smaller companies who may or may not get there, because it's a much higher risk profile."
Of the recently listed tech stocks, the success stories tend to be larger companies who have been around for longer, such as Gentrack and Vista.
"People have to understand that not all tech stocks are created equal. Some are going to be higher risk than others and it's a pretty unpredictable space.
"We would all like to go back in time and buy Netflix, Facebook, Google right from the beginning, but you can't predict which one is going to be the winner.
"For every one that does succeed, you have a range that don't. It's hard to isolate those ideas that are ultimately going to come off," he says.
"I think the message is that if you are going to be invested in the higher-risk parts of the market like this, diversification becomes more important. "And it's not about their earnings today, but what their earnings will be in the future.
"It's an exciting part of the market, but you need to understand the pros and cons."
After the deluge comes the listings drought
Rarely has there been a more buoyant time for a company to list on the NZX, yet new issues, particularly technology companies, have been few and far between.
That's in stark contrast to 2014, when a raft of new tech issues hit the market.
The class of 2014 turned out to be a mixed bag, which in itself may explain why more tech companies aren't lining up to list, says Shane Solly, Harbour Asset Management portfolio manager and research analyst.
It may also be a case of investors heading straight to the business and bypassing public issues.
"If you look back at the class of 2014, there have been some that have performed while others will need more time," says Solly.
"When you look globally across the tech stocks, and how the industry is being valued, there is still a good appetite for these businesses.
"One thing we do know is that the rate of technology change is really accelerating.
"Technology is still seen as an area that people want to invest in, but I just wonder if this range of performance outcomes [since 2014] may have slowed down some folk who may have been considering listing on this market.
"I also wonder if there is a lot of direct investment - whether it's venture capital or longer term wealth funds - going directly into some of these businesses.
"Maybe they are choosing that path rather than the the public paths to raise equity."
Solly says companies need to be ready to come to the market, with the right governance and the right path towards being a solid business.
Rob Mercer, head of private wealth research at Forsyth Barr, says some may have got their timing wrong. "On reflection, there are times when some companies come to market a tad early," he says. "This tends to be driven by demand and global trends."
But Mercer says there is interest opening up in artificial intelligence, robotics and "the internet of things".
"If these areas gain traction, then no doubt we will see some new listings."